CAROLYN LOCHHEAD / San Francisco
Chronicle 19jan2001

Bush, in his first direct comments on California's rolling blackouts, whose
repercussions are beginning to cascade beyond the state's borders, blamed the
problem on California's "flawed" deregulation legislation, which he
said the state has to fix.

Bush added that the federal government "can help to some extent"
but said that help would be directed at easing environmental regulations that
are preventing power plants from running at full capacity.

Bush's comments — combined with bipartisan blasts from the Senate yesterday
— made clear that Washington has little sympathy for California's thirst for
power and distaste for power plants.

Senators from Washington and Oregon turned the confirmation hearing for
Bush's Energy Secretary nominee, Spencer Abraham, into a tribunal on California,
blaming the state's policy fiasco for electricity price increases and
environmental damage in the Northwest.

"The people of my state have been more than a good neighbor," Wyden
said.

Washington Democrat Maria Cantwell agreed, expressing her "grave
concern" about the consequences of California's power drain on the
Northwest.

With Northwestern water reservoirs low after a dry summer, California's
energy demands are straining hydroelectric facilities there and threatening
salmon runs.

"My state is being set up to be an energy farm for California,"
charged Sen. Gordon Smith, R-Ore., adding that while California consumers have
seen 9 to 15 percent rate increases, Oregon businesses "are being put on
notice that their rates are going up 30 to 40 percent. Whatever hope they had
for a profit this year is gone."

Smith accused California of refusing to build new power plants, saying,
"We don't create light by hitting a light switch. We have to reconnect the
reality dots."

Acknowledging that she was finding little sympathy on the Senate Energy and
Resources panel that she just joined, Feinstein replied, "It's very easy to
say, 'Oh, California is hoisted on its own petard — let them work it out.'
That's a very dangerous philosophy."

But Bush made clear that he sees the source of the problem as defective
deregulation — and that the answer is more deregulation, not re-regulation.

"I understand the deregulation law of California is flawed, and
therefore California must change the law," Bush said. "It's their law,
for example, that didn't allow forward contracting of gas (and) forced
wholesalers to purchase at the spot market. That's fine so long as the price of
gas is dropping. The failure of an energy policy, however, has made the price of
gas go up."

Bush said the state's deregulation "created structural problems, and now
they're paying for it."

He also said he had spoken recently with Davis by telephone and was
"pleased to hear they're beginning to bring plants online."

But, he said, "California must be aggressive about increasing the amount
of supply of power. We cannot conserve our way to independence. . . . We can
have incentives for conservation, but the solution — short- and long-term —
is going to be more supply into the marketplace."

In response, Davis insisted that regulatory action — if only temporary —
was needed to restrain wholesale prices.

Davis said he had talked to Western governors who had generally agreed that
it would be possible to achieve the objectives of a price cap without calling it
one.

"We're trying to speak with one voice as a region," Davis said.
"We need an adjustment on wholesale prices. All states are absorbing the
burden."

Davis reiterated his call for federal regulators to order lower wholesale
prices, saying such an order could be temporary.

Bush, however, said he found it "interesting" that "a lot of
the harshest critics of a balanced environmental policy are beginning to have
rolling blackouts in their states."

At the Abraham hearing earlier in the day, Feinstein made public a letter she
just received from Craig R. Barrett, chief executive officer of Santa Clara
chipmaking giant Intel Corp., who warned that the electricity crisis poses
"an extraordinary threat to California's economic and social
stability."

Intel has said it no longer will expand in the state pending a long-term
resolution of the state's energy shortages. Silicon Valley manufacturers, who
not only consume large amounts of power but require extraordinary levels of
reliability, are warning that they could start leaving the state, ending
California's high-tech gold rush.

Feinstein said recent rate hikes to California consumers will have to be
extended, and she denounced opposition to a utility bailout.

"Now what I decry is this thing, 'Oh, God forbid you bail out the
utilities, ' " Feinstein said. "I don't agree with that at all. I
think we have to keep the utilities functioning because not to do so is to bring
on further chaos."

The House also jumped into the fray yesterday as the Energy and Commerce
Committee promised a "top-to-bottom review of America's strategic energy
policies, beginning with a fact-finding visit next month to troubled California
utilities."

"It's imperative that we get to the bottom of the mess in
California," said committee chairman Billy Tauzin, R-La. "If this
problem spreads, it could send shock waves throughout the economy."